I feel these days that I am in Fintech and in Capital Markets cave exploration! Here I am
ICOs are in vogue for funding early-stage projects. For now, they remain focused on blockchain powered ventures ranging from open source projects to Dapps (decentralized apps) and dressing up existing apps with a token. It is already clear that many projects are blinded by the amounts raised via ICOs and the monthly record breaking sizes. So, like a bull in a china shop, ICOs are in most cases processes with strong Centralized procedures and without Transparency and needless to say that the customer experience (UX) is dismal.
Again, customers are blinded by the returns and Fear of missing out. So they ignore the dismal UX which not only is user-unfriendly for onboarding but includes hacking risks, and phishing. Investors – customers live with the fact that in many cases, the tokens are listed on exchanges months after the ICO sale or end up on obscure exchanges – so there goes the liquidity.
The flow of Ether, which is the main cryptocurrency used to buy all ERC20 compliant tokens, is centralized to the website address of the company (or foundation) raising funds. So there goes the violation of decentralization by accepting all monies in one place.
The KYC process is also done in the traditional centralized way. For any amount looking to buy tokens, that exceeds the minimum regulatory requirement the usual process is applied (e.g. in Switzerland it is 2,000CHF). This means that the prospect token buyer hands over his-her IDs to the company-foundation that is fundraising.
But when will Decentralized IDs become the standard in ICOs to replace the Centralized KYC a l’ancienne?
When will Decentralized Escrows become the standard in ICOs to replace the Centralized flow of funds?
When will Transparency of usage of funds raised, become the standard in ICOs so that investors and the community have a real-time monitor of the flow of funds? Or even better, when will the standard become that raised funds will be released based on a coded schedule that is triggered based on new kind of pre-determined KPIs.
Johannes Gees’s presentation at the first ICO Summit roundtable was «From Traditional Crowdfunding to ICO: Mind the Gap» and for me, he highlighted that regulators who naturally are trying to wrap their head around the ICO ecosystem and how to regulate or not, may start from their experiences and framework from the crowdfunding sector. Johannes Gees is the founder of WeMakeIt, one of the leading European reward-based crowdfunding platforms out of Switzerland that is 6 yrs old and has funded more than 4,000 projects to date ranging from humanitarian endeavors to innovative new technologies and applications in arts and fashion. Their business model is to vet and support small projects and offer them not only a funding portal but also consulting services so that their success rate is increased. Based on the reported figures for 2016, the success rate was 65%.
He shared the journey of his crowdfunding platform from 2013 and the experiences with the Swiss regulator but not only, as they work in more than four languages and in many countries. Their focus has been in projects that are creative whether focused on science or the arts. As he pointed out, regulation applies to all project sizes, whether small or large. So, when WeMakeIt started FINMA was okay with the rewards based platform which was accepting the money donations on its platform. But in 2014, FINMA declared that this was illegal and it took roughly two years to find a compliant online method to deal with this guidance. So in 2016, WeMakeIt partnered with FairGive, to offer escrow accounts for the donations. FairGive.org is a Fintech that can accept SMS donations via the Swiss telecom providers Swisscom, Sunrise and Salt.
Just two months ago, as if life was boring, FINMA changed the regulation essentially back to the original one (in 2013 when WeMakeIt started). Now one can take money and keep it centrally for 60days and then channel it to the projects.
But Johannes continued to share the twists and turns of the crowdfunding business, which is global in nature. Now he says he has the Austrian Regulator FMA looking at WeMakeIt and its practices.
Contemplate the analogies with the crowdfunding aspect of ICOs. And don’t forget that so much needs to be done to start seeing the light at the of the tunnel-cave. So much needs to change so that founders fundraising with ICOs are really in alignment with the decentralized and transparent aspects of the blockchain technology, and similarly for customers investing or using the tokens. I continue with my torch for genuine decentralization and transparency which would be a true win-win for founders and customers.
Olga is organizing monthly meetups following the successful ICO Summit in Zurich. She recently joined Miko Matsamura from Pantera Capital (a San Fran. $100M ICO-only fund) in the new self-regulatory effort ICO Governance Foundation (IGF).
Johannes Gees recently joined the Bitcoin Association Switzerland as a corporate member as WeMakeIt is looking to spur projects in the collaborative space of crypto and Blockchain.
Efi Pylarinou is a independent Fintech thought-leader, consultant and investor.
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